FUTA reduction

[Margaret CPA in OH]

Federal Unemployment Rate Change effective July 1, 2011

Congress has announced that the 0.2% FUTA surcharge will not be extended before June 30, 2011. Employers have been required to pay a flat rate of 6.2% on the first $7,000.00 of each employee’s annual wages for FUTA. The 6.2% FUTA rate included a temporary 0.2% surcharge that was first added in the 1970’s. The FUTA rate will be reduced from 6.2% to 6.0% effective July 1, 2011. Employers will still receive the 5.4% credit for paying state unemployment on time, reducing the FUTA rate to .6% on wages paid up to the annual FUTA limit of $7,000.00.

The IRS is currently revising Form 940 (Employer’s Annual Federal Unemployment (FUTA) Tax Return) to accommodate the two different FUTA rates for calendar year 2011.

I will begin to calculate the 0.6% rate effective July 1, 2011, and will continue to monitor this issue closely and send additional communication as necessary.

To read more about this change, view Section 14 in the IRS Employer’s Tax Guide.

[Catherine]

Thanks, Margaret!

[Medlin Software, Dennis]

Just for grins...

The temporary surcharge was implemented in 1976, and has been extended every time it was supposed to expire. Based on that alone, some (many?) are advising to plan on the surcharge to be extended again, or made permanent. Could happen in the second half of the year, or even later I suppose. Personally, I watch the IRS forms division for these changes, as they are the ones who can force some time pressure on the elected officials. Form 940 is usually set in December, so nothing "has" to happen until then. If the surcharge gets retroactively added back, the "extra" amount would likely be due with the 940.

IMO, the current UI "system" will not continue as is. Too many states are in debt to the feds, and have no signs of paying back the amounts in a reasonable time. The key to the proposed changes is raising the FUTA subject wage amount, and indexing it. This will force the hand of states without the political will (such as CA) to raise their own subject amount. CA is the state in the most UI debt, reported to be "eating" 40 MILLION dollars A DAY from the federal fund as of November 2010 (last time I really looked).

[Gail in Virginia]

Just for grins...

The temporary surcharge was implemented in 1976, and has been extended every time it was supposed to expire. Based on that alone, some (many?) are advising to plan on the surcharge to be extended again, or made permanent. Could happen in the second half of the year, or even later I suppose. Personally, I watch the IRS forms division for these changes, as they are the ones who can force some time pressure on the elected officials. Form 940 is usually set in December, so nothing "has" to happen until then. If the surcharge gets retroactively added back, the "extra" amount would likely be due with the 940.

IMO, the current UI "system" will not continue as is. Too many states are in debt to the feds, and have no signs of paying back the amounts in a reasonable time. The key to the proposed changes is raising the FUTA subject wage amount, and indexing it. This will force the hand of states without the political will (such as CA) to raise their own subject amount. CA is the state in the most UI debt, reported to be "eating" 40 MILLION dollars A DAY from the federal fund as of November 2010 (last time I really looked).

I think that is interesting information. Can you provide a web site or other source of information where we can look at which states owe how much in UI debt? I am curious now that you have raised the issue.

[Medlin Software, Dennis]

I an not vouching for any of the links, but when taken in total and context, you should be able to get the idea... It is impractical to believe the "credit reduction" system will keep the FUTA fund afloat, let alone pay back what must now be nearing 50 billion in loans.

Only 8 states still use the 7,000 subject wage limit. For example, Washington is 37,300.

http://www.americanpayroll.org/members/stateui/state-ui-2/

http://www.ows.doleta.gov/unemploy/content/data_stats/datasum10/DataSum_2010_3.pdf

http://www.gao.gov/new.items/d10692t.pdf

"As of April 1, 2010, 34 of the 53 state trust funds have outstanding loans totaling $38.9 billion from the federal government to pay benefits (see fig. 1)."

http://money.cnn.com/2010/04/08/news/economy/state_funds_jobless_benefits/index.htm

http://projects.propublica.org/unemployment/

http://workforcesecurity.doleta.gov/unemploy/content/midsession_review.asp

http://www.talx.com/News/articles/Journal_of_State_Taxation_JulyAug09.pdf

http://www.thomasandthorngren.com/comments-about-federal-unemployment-futa

http://www.trnstaffing.com/news-events.aspx?newsid=61

http://www.mcclatchydc.com/2010/11/09/103399/californias-unemployment-fund.html

http://articles.sfgate.com/2009-06-02/news/17208294_1_jobless-benefits-payroll-taxes-unemployment

http://www.allvoices.com/contributed-news/8343113-obama-administration-proposes-increase-in-futa-tax

http://www.sor.govoffice3.com/vertical/Sites/%7B3BDD1595-792B-4D20-8D44-626EF05648C7%7D/uploads/%7B3BCE179C-DD26-46E0-84C7-017C84D471E1%7D.PDF

http://www.ajc.com/business/georgia-has-no-plan-884852.html

[MAMalody]

I am sure this is a dumb question (I don't do payroll taxes), however, how can we have 50 states and the District of Columbia and make the following statement: As of April 1, 2010, 34 of the 53 state trust funds have outstanding loans

Just curious. I guess some state have more than one trust fund?

[Medlin Software, Dennis]

I believe the quote came from the GAO...

The 53 includes (insert the proper current term here: territory, possession, something else) PR and VI, but excludes American Samoa, Guam, and the Northern Mariana Islands.

[Catherine]

Thank you!

I believe the quote came from the GAO...

The 53 includes (insert the proper current term here: territory, possession, something else) PR and VI, but excludes American Samoa, Guam, and the Northern Mariana Islands.